"Roku and The Trade Desk are both high-flying momentum stocks that benefited enormously from cord-cutting, but because Roku's more consumer facing, people reflexively buy this one as the true cord-cutting play," the "Mad Money" host said. "And, at this point, I much prefer the less well-known Trade Desk, which has better financials and I think is a better story."
The way Cramer sees it, The Trade Desk, whose software helps media clients with targeted ads, presents a better growth proposition than Roku. Though Roku stock rallied hard in 2019 on increasing competition in the online TV and video industry, the glitter may be wearing off as the streaming service carrier's sales growth shows signs of slowing.
The Trade Desk is in a better position than Roku to continue serving as a third-party player to rival streaming companies, the host argued. He pointed to Roku's contract dispute with Fox ahead of Sunday's Super Bowl, which threatened to limit millions of Roku customers' access to Fox channels on its devices, as a sign of ongoing risk for the company.
The two companies did, however, make a last-minute deal that cleared Roku to carry the channel and the contest that saw the Kansas City Chiefs taking down the San Francisco 49ers.
"With 30 million users of its own, Roku has a lot of heft, a lot of influence. That's generally a good thing, but it also means they're increasingly more likely to be seen as a competitor than a partner," Cramer said. "The Trade Desk, on the other hand, is still a pure facilitator. They can work with anybody."
He recommended investors buy into Trade Desk shares on any weakness ahead of its earnings report later this month. The stock rallied almost 124% last year. It has climbed more than 5% to $274.22 per share thus far in 2020.
Starting 2019 near $30 per share, Roku peaked on the market near $170 in early September before finishing the trading year at about $134 a piece. The stock began to slip near the end of the year after the company revealed in November that sales growth fell quarter over quarter from 59% to 50.5%, Cramer noted. The next month a Morgan Stanley analyst downgraded the stock to underweight from equal weight.
"In short, people started worrying that the growth had peaked," Cramer said. "I think [the stock] deserved most of that run, though, but by the winter Roku had clearly gotten ahead of itself. ... After such a huge move, [investors] didn't like the risk-reward anymore."
Still, Cramer is convinced that Roku shares have more room to run when the company reports fourth-quarter results next week. Wall Street analysts expect to see revenue of $392 million and losses of 13 cents per share, according to FactSet. That would represent growth of nearly 50% on the top line when compared with the same quarter the year prior.
"I don't want to count Roku out," he said, adding that if their quarterly numbers are strong, "I expect the stock to soar. However, even with the stock down nearly 50 points from its highs last fall, I'm not loving the risk-reward here."